System and method for de-risking a pension fund

Abstract

A system for de-risking a pension fund, the system including: an input module for receiving asset class forecasts; a modeling module for modeling a plurality of portfolios based on the asset class forecasts to provide a de-risking framework; an asset mix module for receiving an asset mix for each of the model portfolios based on the de-risking framework; a database for storing data related to the asset class forecasts, the model portfolios, and asset mix; a processor configured to monitor the model portfolios for performance within the de-risking framework by: calculating an indicator of funded status volatility; comparing the indicator with a benchmark; and reporting the result. In particular, the indicator of funded status volatility is a liability tracking error and the benchmark is the liability tracking error of a conventional or standard pension portfolio.

What is claimed is: 
     
       1. A method for de-risking a pension fund, the method comprising:
 receiving asset class forecasts from an input module; 
 modeling a plurality of portfolios, via a modeling module, based on the asset class forecasts to determine a de-risking framework; 
 determining asset mix for each of the model portfolios based on the de-risking framework; and 
 periodically evaluating the model portfolios performance within the de-risking framework by, via a processor:
 determining a funded status volatility measure for each model portfolio; and 
 comparing the funded status volatility measure of each model portfolio with a predetermined funded status volatility benchmark to determine whether each portfolio is within a target range; and 
 reporting results of the comparison. 
 
 
     
     
       2. A method according to  claim 1  further comprising receiving historical data and back-testing the model portfolios against historical data via a back-testing module. 
     
     
       3. A method according to  claim 1  wherein the plurality of portfolios comprises 10 or fewer portfolios. 
     
     
       4. A method according to  claim 1  wherein the plurality of portfolios comprises 6 or fewer portfolios. 
     
     
       5. A method according to  claim 1  wherein the plurality of portfolios comprises at least one portfolio for under-funded status and at least one portfolio for over-funded status. 
     
     
       6. A method according to  claim 1  wherein the funded status volatility measure comprises a liability tracking error based on comparing the portfolio with a liability proxy. 
     
     
       7. A method according to  claim 6  wherein the funded status volatility benchmark is the liability tracking error of a standard pension portfolio. 
     
     
       8. A method according to  claim 1  wherein the de-risking framework comprises providing portfolios for a plurality of funded status levels. 
     
     
       9. A method according to  claim 8  wherein the plurality of funded status levels comprise: 80%, 90%, 100% and 105% funded status. 
     
     
       10. A system for de-risking a pension fund, the system comprising:
 an input module for receiving asset class forecasts; 
 a modeling module for modeling a plurality of portfolios based on the asset class forecasts to determine a de-risking framework; 
 an asset mix module for receiving an asset mix for each of the model portfolios based on the de-risking framework; 
 a database for storing data related to the asset class forecasts, the model portfolios, and asset mix; 
 a processor configured to periodically evaluate the model portfolios performance within the de-risking framework by:
 determining a funded status volatility measure of each model portfolio; 
 comparing the funded status volatility measure of each module with a predetermined funded status volatility benchmark to determine whether each portfolio is within a target range; and 
 reporting results of the comparison. 
 
 
     
     
       11. A system according to  claim 10  further comprising a back-testing module for receiving historical data and back-testing the model portfolios based on the historical data. 
     
     
       12. A system according to  claim 10  wherein the plurality of portfolios comprises 10 or fewer portfolios. 
     
     
       13. A system according to  claim 10  wherein the plurality of portfolios comprises 6 or fewer portfolios. 
     
     
       14. A system according to  claim 10  wherein the plurality of portfolios comprises at least one portfolio for under-funded status and at least one portfolio for over-funded status. 
     
     
       15. A system according to  claim 10  wherein the funded status volatility measure comprises a liability tracking error based on comparing the portfolio with a liability proxy. 
     
     
       16. A system according to  claim 15  wherein the funded status volatility benchmark is the liability tracking error of a standard pension portfolio. 
     
     
       17. A system according to  claim 10  wherein the de-risking framework comprises providing portfolios for a plurality of funded status levels. 
     
     
       18. A system according to  claim 17  wherein the plurality of funded status levels comprise: 80%, 90%, 100% and 105% funded status.